Tuesday, 22 December 2009

I am now in very good company in saying this, with not only Mervyn King of the BoE calling for it, but Paul Volker and John McCain also saying the same thing as of last week. The Banksters will fight it tooth and nail, because they all kinda like getting the profits and bonuses of hedge funds, rather than the boring old commercial banks they're thought to still be by their depositors, but its the only thing that will prevent these massive banking failures again in future.

Glass-Steagall was instated in the US as a result of the last widespread set of bank failures, the Great Depression. Its function was to prevent commercial banks from speculating with your deposited money. It was repealed just before the end of the last century and the banks took the fullest advantage of their newfound freedom to set themselves up for yet another spectacular failure. A spectacular failure that you and I and everyone else, including our offspring, get to pay for papering over (but note, it is still not "fixed" by this papering over with newly printed money).

No other country's bankers will agree to similar restrictions unless and until the US banks are forced into agreeing to this limitation again, because they naturally want a level playing field like anyone else would. The US necessarily have to take the lead again, just because they are still in the position of dominance over everyone else. Everyone else will then fall into line behind them.

Monday, 21 December 2009

But if you look at this graph you'll see that compared to Greece we in the UK have a bigger budget deficit, albeit with a significantly smaller debt-to-GDP ratio. The reaction of the Greeks is to strike, riot and generally not accept that they're all collectively working the system to their own advantage and not the common good of their nation, and they continue to choose voting for whoever will butter their own personal bread the thickest even though their kids and grandchildren will pay for all of it. Perhaps they will get a surprise and find that in the longer term they get to pay too because the wheels fall off sooner than they hope.

Compare the UK to Ireland and you'll see that we have bigger budget deficit ratio as well as higher overall debt-to-GDP ratio. The Irish reaction is that they must seriously cut public services and public sector pay rates in order to reduce their budget deficit, hopefully there is a chance they can stay solvent in the longer term. This is pragmatic and there is hope that their economy will be able to recover as a result of accepting these steps are necessary.

And yet everyone thinks "it can't happen here"? I don't understand why, personally. Here nobody is willing to accept that we can't afford those wonderful frontline public services that are so sacred to Labour (or more to the point, to the unions -- those large blocks of loyal voters are really all that is cherished by Labour if truth be stated). Nobody (yet) accepts that those cuts must and will be made, and the longer we delay them the worse they will have to be.

Thursday, 26 November 2009

If Mr Armstrong is right (and yes, he invariably is), you should not buy a house any time soon, unless you are not buying it as an investment or a store of value as people have in the recent past, but purely as somewhere you want to live in for a long time. Similarly, if you are considering selling your home because you are realising perhaps that you are having, or might soon have, trouble keeping up with the mortgage payments, this article might help you make up your mind whether to do that or not.

Please note, the graph and overall forecast in this report are discussing the real value of property over the coming years, but in today's fiat currency world the nominal price is not likely to drop as far, or possibly even at all — hell, maybe if they really get busy with the printing presses the numbers might even go up, who can say? The upshot of all this is that you may or may not lose on property in nominal terms over the coming years, but in real terms you almost certainly will. "Other stuff" will go up in nominal value (or perhaps not go down as much) more than property will.

Wednesday, 25 November 2009

If you are still debating with yourself whether it would be good for the UK to join the euro bloc or not, look no further than Greece, Spain, or Ireland to see that it is a straightjacket that removes all options of local control. If you join the euro area, you are automatically tied at the hip to Germany's economy. Germans are desperately wary of creating inflation, and their still-operative export-based economy is still bringing in enough to just about pay the bills so they are not (yet!) forced to join the global money printing orgy to any significant degree. As you can see, Greece, Spain and Ireland are facing up to the fact that the costs of their socialist welfare-state economies are unsustainable.

France is stealthily going behind the curtain recently with their quiet loan to spend on more social largesse, trumpetted as more "investment for the future". Yeah, when was a debt ever an investment? If you believe that, perhaps you would like to lend me a million pounds over 30 years for 4% interest, so that I can "invest it in paying off my previous loans that are coming due, plus feeding and educating my kids"..? Maybe in a year or two you will then give me a new loan for two million, which I will use to repay the earlier loan you gave me, and to pay for feeding and educating another batch of children? This is called a Ponzi Scheme when Madoff does it, but when a government does it well that's just peachy.

In the past, all of these countries simply would print up more money (Quantitative Easing in today's parlance) to paper over the problem, by devaluing their local currencies. Like, for example, we are doing in the UK, and the American's are doing in the US. Now those hamstrung nations within the euro zone have this option removed from their menu. There is no other choice but some combination of cutting costs (people are starting to riot already, and they haven't even really begun to do what is necesary), raise taxes (good luck), or default on their debts and suffer the crippling consequences of that. Nice set of options there.

No, here we have the very reasons for staying OUT of the euro zone. I don't care what our leading politicians might tell you. They are all to a man simply looking after their own selfish interests.

In the UK we will continue to use our additional traditional option, printing more pounds to reduce the value of our debt to other nations. This is so much more acceptable to the average voting member of public, because it is more subtle and 99.9% of them don't even realise it is happening. The extent of our problems is such that we will do this in addition to also both raising taxes and significantly cutting public costs.

Labour will be voted out next year because people aren't feeling an economic glow any more. The Conservatives will be voted in, and they will take a razor to the welfare state and all public services, simply because it is unavoidable. Once again the cycle will turn, and we will have a new Thatcher to hate in Cameron. Few will realise they are punishing Cameron for Brown's mistakes, much as few realised they were congratulating Brown for the previous government's good stewardship and plans for the economy as handed over.

Monday, 16 November 2009

There will be a "new, independant government agency" setup to provide financial education. This sounds like a laudable development that has been a LONG time coming, since most people come out of school completely clueless about all things financial and then they wade far out to become neck-deep in debt before too many years of their working lives have passed, and most of us will never completely escape this trap. Helping people avoid the issue seems like the only sensible thing to do. In fact, I would argue it should be right up at the top of the curriculum with the three R's myself, because it is a fundamental life skill to be able to manage money and budgets, at least at a rudimentary level.

But on closer inspection I realise that this new initiative is purely a palliative measure, because the education will not be given to all and sundry as part of the curriculum. It will be taught to people by an agency when they are in trouble already. This is far too late! Perhaps it will help some people avoid going irretrievably in too far, which is of course better than nothing.

But why stop short like this? Ask yourself who stands to benefit from most people being in debt to at least some degree, and the answers you might come to will not include you and me the average chump debt slave on the street.

No, someone out there much prefers to keep the average person on the street disinterested in all matters relating to money and finance, so they prefer to trust those nice people in the financial services industry. You know, those clever people in the big houses, with the Porsches and the yachts. Someone has to give them the money they use to buy those things, and if you didn't realise already, that person is you!

Sunday, 15 November 2009

As just about the only major global investment bank to sail almost unscathed so far through the economic winds of the last couple of years, HSBC know a thing or two about prudent speculations and economic trends, I think it is fairly safe for me to state here.

Tuesday, 27 October 2009

Iceland was one of the hottest of go-to countries when it came to finance not so long ago. I think I recall they had the highest GDP per capita on earth at their peak a couple of years ago. Then along comes a credit contraction, and they find themselves on their knees begging their neighbours to lend them money and bail them out, and their currency halves in value, as Tommy Cooper would say, just like that. Suddenly everything that you don't make or grow domestically becomes cripplingly expensive so most of the population cannot afford what they previously considered the basics.

It has come to the point in Iceland now where you can no longer get a burger at McDonald's, because Ronald can't make a profit since he has to import all the ingredients from Europe to ensure quality is maintained. Of course, many would argue this is just one of the positives to be found in a bad situation...

But seriously now what I'm thinking is... wow, look at where all the stuff in the shops here comes from, because I think perhaps potatoes, carrots and milk are locally sourced, but really not much else is made in the good old U of K these days if my eyes do not deceive me. Well, of course there are those innovative but toxic financial instruments, yes clearly we are the the dominant provider of those and people have bought those hand over fist for the last decade or so. I wonder how long people will continue to want those?

Wednesday, 21 October 2009

Funny -- I didn't know he was a banking specialist. (In fact, I thought that he was clueless on just about every subject but quite happy to dabble in them all and force the experts to bend to his iron will -- it seems that I stand corrected!)

I am fairly confident that Mervyn King is something of a banking expert though...

Just to let you know where I stand on this, Mervyn is dead right that retail banking should be firewalled from investment banking. This would prevent the risk that failed speculations by the investment banking community will impact on the life savings of the man on the street. This separation of function is exactly what the Glass-Steagall Act of 1933 was all about, put in place for the exact same reason after the last similar credit implosion that caused the Great Depression. It is interesting to note that we didn't have any serious credit implosions since Glass-Steagall's 1933 inception, until it was repealed in 1999 -- since when we have had a couple of beauties so far this millennium, and I think it is safe to say there will be more as things stand right now.

Let the investment banks grow as large as they wish, there is no problem with "too big"; only with "too big to fail". The real issue is investment banks grow fat by risking money that is rightfully yours and mine, as depositors, not their own -- so when their speculative bets turn bad and they take massive losses, the money they lose is yours and mine not theirs, and so to prevent public outcry the government are forced to step in and cover those losses in order that you will be able nip down to the bank and draw out your money when you want to, and you won't turn up on either Threadneedle Street or Parliament Square, carrying placards and pitchforks demanding that the bums all be thrown out on the street so you can hang them from lamp posts where they belong. Let them make bets and profits as large and ridiculous as they like, but remove the requirement that they will be bailed out with our taxes when it happens. Disallow them from putting the money of depositors at risk.

As Merv says, some people say it is impractical. But I would point you at the Glass-Steagall Act of 1933, just one more time in this missive, and point you once again to the fact there were no massive credit blow-ups while it was in place until 1999, to demonstrate that it is entirely possible and in fact it would appear highly desirable.

So, how could Gordon think otherwise? Perhaps he has a few friends that benefit from the status quo, eh..?

Factor in that "official" statistics are always, ALWAYS skewed from reality so that they make the government appear better than warranted, without exception, and suddenly you realise you can be pretty confident that both 40% and 50% are very likely to be short of reality.

But even beyond the fact that government statistics are always and without fail fabrications, taking their most conservative argument that the public sector comprises "only" 40% of GDP, you still run the math very quickly indeed and come automatically to the conclusion that even that level is totally unsustainable. How can 40% of the economy be paid for by the remaining 60%, and everyone be happy with the arrangement? Especially when a large (and growing) slice of the economy is formed by people who are neither in the public or private sector, collecting their unemployment benefit every week?

These are lies (sorry, "statistics") of last year too -- surely anyone out here in the real world knows with certainty that there are a lot more people who have lost their jobs since those statistics, so the numbers are even more out of balance than reported.

No, this all adds up to a monstrously over-inflated and wholely unsustainable bubble in public sector employment over the last decade or so, which necessarily will now burst because it is impossible to sustain any longer.

So much for Prudence, Gordon. Thank you so much for your great stewardship of this economy. If you really wanted to "save the world", you would resign and let someone with a brain have a go on the levers behind the curtain for a while. And take your books on Keynes with you when you leave, please.

Friday, 9 October 2009

Can it really be true that in France - the country where by law it is almost impossible for anybody to be given the sack but when they are they have a massively generous payoff, everybody has a fully-defined remit of tasks they are allowed to perform in their job and certainly they are not allowed to be asked to do any other task they do not wish to perform, and nobody is allowed to work more than 35 hours a week - there is a significant national problem with suicides relating to workplace-stress?

Unless these are the people who can add up and have realised that all of these luxuries they have collectively awarded themselves come at a high price, and it means that they cannot compete effectively in a globalised marketplace. OK, maybe if that is the case then I can understand why they might wish to end it all now, before the wheels eventually really come off their society and it decends into chaos...

Tuesday, 29 September 2009

This is a surprisingly candid interview with a smart player from the world of finance, on CNBC.

Notice how the hosts are quiet and actually listening to the guest for a change, not butting in with some smart-alec comment or put-down every few seconds. This is highly unusual at any time, but especially when the guest is talking down the almighty dollar or, horror of horrors, suggesting gold might significantly appreciate. Normally this kind of talk would invite a cat's chorus of derision from the hosts.

Notice also how the topic is matter-of-factly discussing the cutting in half of the dollar's value over the next few years, and how this is unavoidably necessary in order to stand any chance of meeting the US' massive current and future debt obligations, and that this is not disputed because the case presented as to why is copper-bottomed and indisputable based on clear and easily verified facts. For sterling-based readers in the UK, think also about the UK's current and future debt obligations, in the face of rapidly declining tax revenues, and you can see that we are in a similarly precarious position right now, and the only answer is the same as for the US: print more pounds and thereby cut the value of each pound in half so the public debts are more manageable.

You'd better hope the authorities in both countries can manage to keep the confidence of the rest of the world up, so they don't get a lot more depreciation than they wanted, and it gets really out of control. To my mind, that is a very, very big ask indeed.

Thursday, 24 September 2009

It's not their fault, it is what they have been taught that is wrong. As usual, if you follow the money trail you can understand who teaches them it, and why.

Howard Katz talks a lot of sense, but occasionally he strays into religion which is most definitely not my cup of tea. However, often he writes good-sense articles on economics -- if you can focus only on this stuff and tune out the other, it's very useful I think.

Currently, we are in the early part of a depression. Some of you will be losing your jobs, but most of you won't. You will not get a great payrise for some time unless you get a promotion or switch jobs, maybe you will take a pay cut and perhaps even quite a chunky one -- but look in the shops and you'll see more and more things are half what they cost before, so you can still buy the things you need no problem. More of them in fact. So you have less money, but you have more wealth. Read the article and this will make more sense to you I'm sure.

Wednesday, 23 September 2009

There is much surprise and speculation about the reason that every single analyst in the City has been summoned to attend a crisis meeting at the Bank. Rightly so, given that this is something that just never happens!

If you ask me, if something smells like a rotten fish stuck behind the cooker, it's probably a rotten fish stuck behind the cooker. Calling in every single analyst, to schmooze them and try to ensure they all toe the Party line that "Quantative Easing is NOT money printing just the same as Zimbabwe was doing not so long ago, and none of you should say that in public again please -- now, enjoy some more of this lovely champagne and simply gorgeous blinis won't you chaps?", just won't change the fact that Quantative Easing is exactly that. I mean you don't need to think about it too hard to realise the name could not be much more explicit, what else could they possible have meant by that name than adjusting the quantity of money in the system? And that my friends, is just what Gideon Gono was doing in Zimbabwe, and the Germans were forced to do in the Weimar Republic a few decades back -- these are just a couple of high-profile examples, but there are many other examples throughout the course of fiat money history.

Only a massive confidence trick can now prevent the same results occuring here in due course. I truly hope they can keep the wool pulled over enough people's eyes, because things will be nasty if/when push comes to shove. But I don't count on it.

Who knows what it'll be next? A carbon tax on the air you exhale? Green tax on the methane you emit at the other end? (Not so far fetched, I read it is being discussed to tax farmers based on the number of cows they have and the amount of green-house-gas-methane they emit). Veggies beware, it might be on a sliding scale basis, who knows..?

Tuesday, 22 September 2009

It ain't rocket science. If you print up more currency, the value of all the other pre-existing currency will reduce due to dilution. It's elementary supply-and-demand. You create significantly more supply, there'd better be significantly more demand or there will be tears before long.

When it comes to currencies, everything is relative -- because all currencies today are backed by nothing but promises and confidence. All governments are on a printing and spending spree right now. However, nobody is printing and spending on the public creditcard with more abandon than the UK government. This is the extremely simple explanation of why the pound has been sliding against all other currencies, it is of no surprise to me (or you, if you have been reading for any length of time).

It is also the extremely simple explanation for why people buy gold and/or silver, or some other tangible store of value, when push comes to shove and the government resorts to printing paper fiat money to cover their past and present mistakes. (And there have been a LOT of mistakes to be paid for over the last decade...)

Here in the UK we have massively increased supply of pounds in the system, and there is dwindling international demand for them at the same time. That is a deeply toxic brew right there! At some point, before too long now, the world is going to finally choke on this huge supply of pounds, and it'll puke them right back in Gordon Brown's face. I wouldn't be surprised to find that I wake up one day and the pound is worth half what it was the day before. Whatever you decide to do about this to protect yourself, don't keep all your eggs in Gordon's basket -- he will trample all over them without batting an eyelid. Then he will reverse back and run over them again and again. Finally after you die he will then take half of whatever you managed to keep hold of and thought you would pass on to your loved ones. Then he will finally be happy and leave you alone. Gotta love socialists, always looking after the little guy like you and me.

Monday, 21 September 2009

In the media you can see report after report suggesting that we are out of recession and a sustainable economic recovery is under way. This is just perception-management, with the governments of the world all hoping and praying that you will all get out to the shops and spend money, ideally on credit if possible, and that you will resume buying houses at ever-inflating prices, again on credit with mortgages.

But my own feeling is that the worm has turned -- people are now switched from being credit-happy, to debt-wary. This is a secular change in consumer habits, whether politicians like it or not, which will play out over a number of years and if they attempt to fight it then they will only make it take longer and be a whole lot worse. This is bad overall for the economy, which is geared up for ever-expanding debt and inflation of money supply, leading in turn to inflation of consumer prices. If this system goes into reverse, as it has, then we need to find a whole new economic model and start using it lickety-split! Instead, politicians hope to get the old system they knew and loved to restart, but they will be unsuccessful and future historians will point to today's politicians as being culpable for what is about to come, for this very reason of their denial of the inevitable. History will not be denied, I don't care if Gordon and Barak don't like it.

But don't trust me -- who the hell am I to speak, with my council estate comprehensive education, a Youth Training Scheme in lieu of any further education, and my staunchely non-specialist attitude to work and life? How could I possibly know about anything better than all the highly-training Cambroxetonian specialists running every aspect of the country and its economy?

You could try listening to guys like these though? They specialise in global economic analysis, and they will tell you exactly what I tell you. They have been right all the way along, in spite of disagreeing with the powers that be and the mainstream media, so I wouldn't bet on them being proved wrong now.

Rig for another storm. More likely two, and probably both worse than the last...

Thursday, 10 September 2009

I mean, it just sits there in a cupboard somewhere, or in an online account. Its a pain in the ass to clean (not that I worry once I've deep cleaned it once after purchase -- light tarnishing just adds to its qualities after that if you ask me). What possible use could it be to me? Nobody else seems to want it.

Ahh, well there is your answer -- nobody else seems to want it.

In this world, you can either pay top price for something that everyone else seems to want (think houses for a recent experience here), or you can pay bottom price for something nobody seems to want (think silver for recent experience here).

Monday, 7 September 2009

If this doesn't make banks lend out the money they have been parking at the Bank of England, nothing will.

The alert among you will notice that banks are in business to lend money, that is how they make money. If they are not lending, it can only be for a very good reason -- they think they will not get it all back again! This doesn't suit the government's agenda though, clearly, so they will force the banks to take on risk that they were not otherwise prepared to. You should expect more economic misery and bank bailouts in the future as a result of this government mandated policy then. Nice going guys! Idiots. :-\

Wednesday, 19 August 2009

David Cameron knows better than I do, that the UK will not default on any of its debts, because the Pound has been a fiat currency since 1948, and so the Bank of England can and will simply create whatever number of pounds are deemed necessary to be able to meet any and all obligations. (That is why we have a rampant welfare state and massive public sector in the UK, in spite of the fact that we cannot afford them in truth, it's because we don't have real money and the government can print up whatever it needs to offer you whatever you want in order to win your vote, and thereby retain what they really want -- which is power.)

In fact, for those of you who are not watching at home, I can report to you that they already are doing exactly this, in broad daylight and on a massive scale, but they call it 'Quantitative Easing' so you hopefully won't twig what they're really up to — they're already 'Doing A Zimbabwe', 'monetising their debts' by paying them all off with freshly minted money and thereby steadily debasing the value of all money previously in circulation. In other words, they are stealing from you and me, and the other people in the world who have made the mistake of buying our debts to keep as their own currency reserves for their own countries (you know who you are, China). The government of the UK will only be able to get away with this charade for so long, before the value of our currency drops like a stone on the world stage and we descend into third world poverty. But that can't happen here, right? Yeah, yeah, please save it -- I've heard it before. :-\

No, David Cameron isn't warning everyone that Labour might cause the UK to default on its debts. He is using the economic disaster that Gordon has propagated over the last decade through his misguided fiscal policies, to score political points. He is trying to better his own future position, by feeding the nation blatant lies that few among the population care to think about and understand. It ain't rocket science, but we've all been taught to believe even thinking about it is crass and distateful.

Sadly the only mainstream UK politician who seems to understand the economics of the situation, and what to do about them, perhaps even is personally ready and willing to do it in spite of the fact that it will be political suicide even if it is the only good thing for the country, is Vince Cable. Its just a shame he is a member of the Lib Dems, because they are unelectable in every other respect.

Why is it that the Telegraph is the only mainstream media outlet, that I've come across so far, which doesn't hide the real stories from you, behind the bread and circuses like sports stories, celebrity gossip, political BS events like Norwich North, etc etc etc? These are nothing, these are future (very) Trivial Pursuits questions. Why are they put front and centre all the time? To keep you from thinking about the things that really matter, that's why. You can't handle the truth.

Personally, if I were to subscribe to buy any daily paper (but really, why would I?), it would have to be the Telegraph (or the FT). All the others are just choc-full-o-distractions to keep you off the scent of what is really happening of importance around you.

Not an article for those of a weak disposition, but I figure it is always better to have a sense of what may happen so that you can at least attempt to prepare yourself, even if only mentally, in advance. Call me old fashioned.

Monday, 13 July 2009

On first inspection is seems reasonable to raise taxes on corporations, because Robin Hood will be robbing the rich to redistribute to the poor.

However, as one of Guido Fawkes' blog posts today shows, the rich simply up sticks and leave for other more tax-friendly shores, stiffing the working poor who can't relocate for the (bigger) tax bill.

With feeling: there is no Robin Hood, Tooth Fairy, Easter Bunny, Santa Claus, or a political party that really does have the interests of the poor working man at heart. You cannot have something without paying for it. There is no such thing as a benevolent all-knowing government who can actually steer the economy without crashing into the rocks. Marx was a fraud and everyone who follows his teachings is too.

There. To all the progressive social democrats out there, choking on their nice glass of wine and reaching for the security of their Guardian instead of this fascist's drivel -- how do you like those apples? But really, when you've recovered a bit, just have a think about it. A proper one, not that one you usually have where you merely confirm to yourself that everything you have been told by others is true.

Friday, 10 July 2009

I have what I consider to be two related posts for you today, both from The Telegraph's economics section.

The first story gives the somewhat surprising news that the Bank of England ("BoE") Monetary Policy Committe ("MPC") yesterday elected NOT to use the option of further expanding its money-printing operations right now. Everyone but everyone, with any kind of interest in the subject, had presumed that they would just keep printing and printing and printing money ("Quantative Easing") for some time to come. Most likely in ever-increasing quantities. (See Zimbabwe, Weimar Germany, Brazil, Argentina, etc etc etc for historical precedents and an educated guess on what the results will be like.) So its really something of a surprise to read this announcement from them.

The second story for you is news that China have stood up once again in front of a roomful of world leaders at the "G8 (plus 5)" meeting in Italy, and told everyone that they are deeply, deeply concerned about the dubious fiat currencies and fiscal policies of certain countries in the Western world. They did not specifically mention names, but you should know that top of the list is the US dollar given the sheer volume of dollars the Chinese hold in their reserves and the lax restraint on the number of new dollars being issued, and second on the list is the UK given the massive volume of money printing at the BoE lately.

At first blush, I submit that very few people would ever consider these two items appearing on the same day to be a coincidence; they just seem so discrete from each other. But I am putting together a couple of dots here, joining them also up to a G8 meeting, and thinking the UK has been warned by the Chinese to stop debasing the pound so badly -- that is the reason for the surprise announcement from the BoE. The threat from the Chinese will be that otherwise they'll seriously consider moving from collecting ever more of our government Gilts in their reserves, to actually disgorging themselves of them and forcing down the market value due to the sheer volume of supply made available (thereby increasing interest rates, which move inversely to the value of the bond). Who in their right mind will hold on to, let alone continue to accumulate, an asset that they know is being deliberately depreciated in value by over-issuance? I mean, the Chinese are smart people and they play a longer game than our short-term vote-grabbing politicians in the Western democracies. They will only put up with being taken for a ride for so long, before they start to formulate their exit strategies and then implement them. My feeling is that we're on borrowed time, the exit strategy has been formulated and its just a matter of time before implementation gets under steam.

Readers in the States can substitute Democrats, Germans can use Social Democrats, etc etc -- they're all singing from the same crackpot theory Robin Hood song sheet, where the strapline is "we'll rob the rich to give to you the voting poor majority" but the footnotes say in very small writing on the back page, long after you will have got bored and stopped reading, "not really, we are the rich and do you really think when you add all this up we will have given you diddly-squat? Suckers."

Tuesday, 7 July 2009

The media and politicians would have you believe that "deflation" (by which they mean the price of things, not the amount of money and credit in the economy per the Austrian economics definition) is a complete disaster.

But I ask you, when was the last time you thought "Hmmm, I kinda like it but I just wish I could pay 2% more, maybe I'll wait and buy it next year for that 2% higher price"? I'm guessing never.

No, in truth you are thinking "Neat! I can buy this stuff with 30% off the price I remember last year, now THAT is a bargain!" Right? You can now almost afford a house you actually want (but wait, because you know it will get cheaper still).

So for you, as a consumer of Stuff, "deflation" (price deflation) is a good thing. You can buy more with the money you earn as a wage slave.

Of course, you might lose your job though, if fewer people are out at the shops buying the products and services that you lovingly create for them. Ah. Now, there's the disaster then. If you lose your job, you won't vote for Gordon and his "free lunches" any more. (It was people like Gordon and their "free lunches" that brought on the circumstances in the first place, if you want to stop and join up some dots here.) Bummer.

So, a little bit of inflation is a good thing, and that is why the elite are always hell bent on bringing that about if at all possible. If they can just keep it under control, you can guard yourself against the pernicious theft of your purchasing power through monetary inflation, by just borrowing more and more money and buying more and more tangible goods, ideally ones that will bear an income too, as a store of value that will keep pace with monetary inflation.

"The Rich" never have a lot of money, but they do have a lot of tangibles that produce income, often appreciating in nominal value to keep pace with inflation too, and very often you will find on inspection that they carry a lot of debt in order to purchase and maintain those tangibles. The simple explanation for this strange-seeming setup, is they know that politicians will steal their wealth by inflating the money supply, because politicians will do anything to buy a vote. Certainly including debasing the currency. So the educated rich simply step in front of that process and put the circumstances to their own advantage. (If only I was from an educated rich background, things might be so different! But alas I went to a State Comprehensive, an awful one at that, on a council estate in the back of nowhere. Consequently, I was deliberately not taught about anything relating to money, not even budgetting skills, and have spent most of my life like most people, ignorant and taken advantage of. Just as it should be. I have come to be interested in and study economics purely by fortunate accident, and life has slowly improved ever since!)

My concern is that in the panic to avoid a deflationary spiral into Depression, the people turning the money taps on full-bore will overdo it and will not be able to turn them off in time to keep the cat in the bag. I think inflation will get out of hand pretty quickly, when it does inevitably show up. If that proves to be the case, we will all be wailing and gnashing our teeth, calling for a return of price deflation again, because we can no longer afford to buy enough food, let alone any luxury items that keep each other in paying jobs. We might keep jobs, but the wages we will earn will be significantly outpaced by the rising cost of living. Look to Zimbabwe, where people were in jobs and paid a fixed salary, but in the course of the day they were working prices of the goods they needed to buy at the end of the day to survive had doubled. If they can find them in a shop at all -- smart shopkeepers will hoard goods in inflationary periods, as they will sell for more tomorrow than today, and the money they would have received in return is worth less tomorrow than today.

To put all this another, more succinct way: Price deflation is not great for the economy as a whole. Raging inflation will be far worse.

Aiming to return to moderate inflation is akin to attempting to balance a bale of straw on a donkey's back as you make the trip to market to sell it, in a tornado -- at first it is blowing all over the place and its pretty hard to get enough weight down on the thing to hold it in place securely, then there will be a brief period of calm as the eye of the storm moves into position and you will mistake this for "back to normal" (aka "green shoots"?) so you'll take off all the weights and shackles to let the donkey walk lighter again since you're a regular good guy that's nice to animals and stuff like that, and then finally the back side of the twister will hit with full force and out of nowhere -- the straw will be gone with the wind before you know it, probably the donkey disappears too, and you will never get to market. You will be left with nothing. Bit of a bitch, huh?

Monday, 6 July 2009

I read a suggestion from a smart man today, which goes something like the below. Logic suggests to me that it would very likely be pretty effective, so perhaps I will make the effort to try it myself from tonight. Here it comes then...

Last thing at night, just as you fall off to sleep, try to think of one good thing that happened today, and one thing that brought you closer somehow to meeting the goals you have set yourself in life (even if its just to think that you haven't set any yet, but that you're going to!).

When you first wake up in the morning, think of one thing that you will do today that you will enjoy, and one thing that is going to bring you closer to your goals (even if it is that you will today start to make a list of goals that you're going to aim for in order to make your life better. Or perhaps your life is already perfect and you don't need to, but you would probably be the first person in all of recorded history...)

Get into a habit of doing this, which will take some effort initially, but like all habits you'll slip easily into it before long, and you'll do it effortlessly, as a matter of routine.

Friday, 3 July 2009

OK, now to my mind this is utter, utter insanity. The goal is of course to discourage anyone to save money, and get them out to the shops spending it to stimulate the dire economic situation. People are afraid to buy things because they anticipate lower prices in future, so they save the money instead. The obvious answer is to get people to burn through their money, right?

Yeah, TOO obvious.

All that will happen, if any of the retail banks follow this lead by the Riksbank, is that they will very likely suffer a run. People will draw out their deposits, since they would much rather put it under the mattress than pay a bank money to keep it "safe" for them, no? Would you put money in your bank, if they were going to take a bit from the pot every month, rather than put more into it? No, you wouldn't.

I am not happy with the idea of having money in a bank at all right now, but there is no way on god's earth I'll let any bank hold a significant amount of my money if they are not going to pay me for the privilege of letting them use it.

Even better, the panic and rush to try to be one of the fortunate ones who get access to their cash, will most likely result in people hoarding that cash, rather than spend it into the economy, anyway. So I would humbly suggest that it won't even have the result they hope to achieve, to kick-start the economy. It will have the opposite effect and exacerbate the original problem.

Given that Swedish banks are no different to any other banks in the world, inasmuchas they employ Fractional Reserve Banking and they deal with other banks internationally as a matter of course, this will be a rolling disaster -- none of the banks have anywhere near enough cash on hand to cover the eventuality that most of their depositors and/or counterparties ask for their money back. Exactly what happened to Northern Rock and the Icelandic banks, in other words. This is the case in all countries today, every country's banks use FRB and all the banking systems or all countries are closely interwoven with each other. If just one bank succumbs to a run and does actually go under, it will have a contagion effect across the globe. Britain could afford at the time to borrow money to support Northern Rock and stop it becoming Ground Zero of global financial meltdown, but now I'm afraid the national creditcard is rapidly approaching maxed-out; it could not be done now.

This is probably the most idiotic idea any central banker ever came up with (and they have some stunningly stupid ideas under their belts). Bernanke at the US Fed has come up with it in the course of his academic career studying deflation and Depression, and how he thinks in his academic Utopian world he can avoid it. The nice people at the Riksbank in Sweden are taking the idea for a spin to see how it really works out. Anticipate trouble. If your bank switches to offering you a negative interest rate, or indeed even if they no longer will pay you a positive interest rate, buy a biscuit tin to keep your money in instead.

Better still, buy some gold or silver and keep it somewhere safe and under your own control. The only honest and reliable forms of money ever invented. Nobody can print up a few more Trillion ounces of gold/silver on a whim, and nobody can shut their doors and deny you access to what is rightfully yours if you don't let them have it in the first place.

The Baron interjects: factor that the US has about six times as many people living in it, to share the debt load... and suddenly Miss UK looks even uglier. Right readers?

The Baron feels he must also add: Factor as well that the US can just print up today's global reserve currency, the almighty dollar, and repay all of those debts tomorrow, if it felt like it. Of course it would very much cease to be tomorrow's global reserve currency, which would come with a significant amount of hardship, but that's a whole other story...

Gordon Brown rejoins: We are the nation best placed to recover quickly.

"And all of that must be paid before people service their own personal debt and mortgages.

What is it about the British people that they think this is a normal state of affairs?

It's insanity

But mention to people, their eyes glaze over and they retreat into denial"

Whoever "UK Debt Slave" really is, I have one word to say to your comment:

Totally.

Generally speaking, people are not interested and just glaze over until you stop talking, when it comes to thinking about how they are enslaved by "credit" (more accurately named "debt", but people wouldn't fall for it so easily if it was more honestly named of course). But I have something right here to say to people that glaze over and ignore that topic: wise up, because sometime, probably quite soon now, you will be sucked under and consumed by debt if you don't do something about it.

Wednesday, 24 June 2009

I thought previously that a pullback to around $880-$900/oz in gold was likely in the short term (and an implied pullback in silver to around $13.50/oz).

It looks like I could have been over-pessimistic, because it only went as low as $916 (silver was around $13.75) and I suspect now that the decline could well be over (silver currently back above $14, gold probing $940 resistance).

In another hour, I reckon we'll have confirmation: either there is a steep drop after 14:00 (UK time) today, when New York opens, and it continues throughout the session, in which case I stick with that earlier forecast for $880-$900; or there is a close above $940 today and in that case likely $1000 is taken out before the end of next week.

Friday, 19 June 2009

You may have noticed that my particular pet project is to try to spread awareness of just how unsound "money" is today. To summarise: our money (and nobody moreso than the USA, but all currencies I mean) is backed by nothing. Our governments can "print"* whatever amounts of $/£/€/etc they feel they need. Often they then use these freshly-minted wads of "money" to buy their own debt bonds (Treasuries/Gilts/Bunds/etc). This has the potential to be extremely inflationary, if it is allowed to get out of hand, and it is silently stealing the wealth of the population (and even more importantly, the future population) to do so. I don't know about you, but I class that as immoral and certainly not what I vote for. So perhaps this puts into perspective for you where I am coming from.

Anyway, I have a link to yet another Martin Armstrong article, which is this time on this very subject of "sound money". He goes on to outline what in his opinion can realistically be done going forward to restore the world to a system of true "sound money", but avoiding the shackles of a true and rigid "gold standard", rather than the US continuing to enjoy its -- as Charles de Gaulle so adequately put it -- 'exorbitant privilege', which dollar-debt reserve holders of the world are expressing growing concern about (rightly).

*actually these days they most of the time do it on a computer database as a simple bookkeeping transaction, rather than actually printing up paper notes, but it amounts to the same thing -- theft of the purchasing power of the money in your possesssion. Another "hidden tax".

Today we have yet another Martin Armstrong article for you, if you are interested? (This one is shorter than the last couple, so no extra credits this time I'm afraid. :-P )

The topic of this one? Indications are there in his considered opinion for a massive political crisis in the USA in the course of the next few years, possibly with a third party coming to the fore and usurping the Democrats and the Republicans. Seriously interesting (if you ask me). Maybe you all disagree, however... let me know?

For (1) I read "death to your dollar... tomorrow, when we are better prepared...", and for (2) I read "we are going to setup more currency swaps with as many of our key trading partner countries as possible, therefore bypassing the need to use more dollars". All is as it should be then.

There is an additional implication in "The document called for broader cooperation in the energy sphere, diversifying energy resources and energy transit routes" too. For this I read "China will loan Russia the money needed to construct a gas pipeline to China's border, and China will take the lion's share of the gas Russia was formerly exporting through their pipelines into Europe" (Russia doesn't have the spare cash that it would require to fund such a project, so it has to borrow it from China.) Is it just me, or is it starting to get a bit chilly?

You maybe think that I bum your day out oftentimes, but these guys have a whole team of trained and experienced economists, who love nothing more than to spend their days collectively analysing economies and prognosticating what will unfold in the future as a result of what they find. I can't hold a candle to these guys (I'm not an economist, trained or otherwise, I am just a 'filter' who has spent a lot of time reading up on these topics the last few years, has come to understand them a lot better than I used to, and see it as my civic duty to raise awareness) and certainly can't add much of any value except to tell you that they have been pretty much spot-on before and I'll be very surprised if they're not again. So I won't even try!

Which set of consumers will be shown by the future's history books to have been the Patsies? Who knows for sure, but I have have my suspicions!

I noted with interest a moment ago -- when viewing an article on the Telegraph website which is just another in a long line that were not worth wasting your time -- that their most-viewed economics section story today is about a German company setting up to sell small gold bars from vending machines to the man in the street (or the supermarket) for a premium price. I came across this story a few days ago, but at the time I didn't think it interesting enough to mention. I find it more interesting today because of the fact it is the top rated story; which indicates gold must be beginning to find wide consumer interest in the UK.

This compares starkly with the stories of people here and in the States having the scrap gold jewellery version of Tupperware parties, pawning off their old trinkets for a discount over nibbles and a few glasses of the old vino.

For anyone out there who found the "homework" article posted yesterday has piqued their interest, here is something for "extra credit". :-)

This one is Armstrong on the subject of Caesar, who in his estimation is the only politician in recorded history who firstly understood a debt problem like the one we face today, and secondly had the conviction to do what it was necessary to do in order to resolve it.

Many people think Obama will be our Caesar. I hope they're right, but unfortunately I'm confident they're not. And Brown? Well, let's just say "don't make me laugh". :-/

If you are short for time and just want to find out what Armstrong thinks must be done now to resolve the debt crisis and avoid civil disruption on a massive scale, you should skip to the final page (for this you will receive only one extra credit though!). To better understand the problem, the background on the real root cause of the problem (which ties-in firmly with yesterday's article), and the full story on why Armstrong believes Caesar was the only Statesman so far in the whole of recorded time to have the right combination of smarts, honesty and conviction to be able to deal effectively with this kind of issue, read the whole thing again -- another 24 pages, and for this you might get three extra credits! (Don't spend them all at once...)

In the linked article, Merv "the swerve" King is reported as arguing last night for more teeth in the Bank of England's banking sector supervision role. Later at the same meeting, Alistair Darling told the same crowd he sees no need for the BoE to be given any more teeth -- the private sector bank executives were at fault and need to clean up their game pronto. (He would say that, wouldn't he -- given he is the head of the Treasury, therefore he is 1/3rd responsible for banking supervision... so you can be sure he is going to point the finger at someone else, and hey the voters have been led to hate the bankers right now so let's go with that!)

My own take on this is: Mervyn is fighting for the very slight chance the UK will be allowed to retain control of its own financial sector, if only he can demonstrate the BoE will keep the banks under its thumb in future, while Alistair already knows that we are going to roll over and allow our financial sector to be controlled by Brussells, and he doesn't want to waste any more time, effort and money on twiddling around the edges. I think we're going 'all in', whether we like it or not.

Wednesday, 17 June 2009

Martin Armstrong is a smart guy. So smart that some very powerful people didn't like how smart he was, and what he had to say to people. He is a political prisoner right now, but he continues to put out quality articles in spite of the fact he is incarcerated, has to pass out his articles to a friend to get them distributed, and writes them on a typewriter -- hence the frequent and uncorrected grammatical, spelling, typo and punctuation errors, plus the somewhat untidy presentation that will be immediately evident. You need to put the possible annoyance of these factors into perspective and just think about the substance rather than the style. His specialisation is his "economic wave theory", that everything goes in cycles and in fact major events can be (and are, repeatedly!) predicted to a surprisingly accurate timeline. Anyway, enough background on the author, on to the specific article.

This article describes "the Leviathan" (the State), its incessant need to expand and control at all times and at any cost, for its own self-serving interest, and ultimately to its own destruction since its expansion leads inevitably to the demise of the host upon whom it must feed (you, the public at large). Lengthy historical perspectives are given to back up the theories along the way, filling the document out to a fairly healthy 24 pages in total. This is not something you should pick up in this down 5 minutes you are probably enjoying right now, but something you would more likely want to schedule, perhaps print out, and read when you have a half an hour you can dedicate to the task (maybe on the commute home or something?).

I think you will find it an interesting and rewarding read, worth the investment of a mere half hour or so, if you have even a passing interest in politics and economics (which you surely must, or you would have by now been thoroughly irritated by these posts and ceased being a fan in Facebook, or unsubscribed if you are going native on the blog or RSS feed). Probably goes best with a glass of red wine -- because you're worth it. :-)

If you found this piqued your interest, there is plenty more where it came from! You can probably find it pretty easily yourself, but if you would prefer assistance just say the word and I will be much more than happy to help.

Stratfor is an objective, non-partisan, private subscription-based strategic geopolitical analysis service*. However, they do put out a fair amount of free commentary, and if you are interested in such things, but maybe not to the extent of actually paying for it and getting the whole enchillada, they have a free newsletter subscription service. To me it seems to be good value, with a cover price of zero! :-)

An example of interesting(?) material that they make publicly available is attached below, which was in a mailshot they put out today. It is on the topic of the recent Iranian elections, and a view on the Israel situation. Its not exactly a typical Facebookesque diversion from real life, but I figure this isn't what you're expecting from this blog and maybe at least one of you will think it is worth the investment of 8 minutes of your time. I hope so anyway.

*I would add that I am not in any way affilliated with Stratfor, and receive no monetary benefit from you subscribing to them if you choose to do so.

What if Henry Bellingham didn't want to defend the case of these people because he sincerely believed there was no defence in their case, so he was not the person best placed to act on their behalf? Is he supposed to argue for something he knows is wrong, perhaps even feel compelled to place himself in contempt of court if he wishes to stand any chance of winning, just because the defendant is very stupid and needs looking after? (Implying that quite possibly in turn their kids may also in fact need looking after..?)

I would advise against selling your old gold right now, but that is just my opinion and it's probably worth exactly what you just paid for it.

The linked article, describing the new phenomena of "gold parties" where people gather at someone's house for a few drinks to sell their broken jewellery to an on-site dealer at discounted prices, also quotes the World Gold Council making the same suggestion though. Perhaps they are worth listening to.

If, however, you really do need the cash and so want to sell your gold to get it, let me know! :-D I will buy it from you at the current spot price, assuming I have the cash myself of course, rather than 30% off like these sharks!

You would be mad, in my opinion, to sell your gold now! (Or silver, I am also interested if you want to sell your silver btw!) And especially for 30% off its scrap value. Perhaps for 10% or 15%, but not thirty!

Nations have only two options when it comes to making public sector purchases, just the same as a private sector business or individual. You can choose to either buy the cheapest, or you can buy from your own local producers regardless of the costs (trade protectionism). Trade protectionism is a disaster in all but the short term, it is just suicidal to overpay for things that you can get cheaper and of comparable quality elsewhere.

Now, ask yourself a question: who makes the cheapest.... well, just about anything you can conceive of? I'm pretty confident your answer is "China" to that question.

So in China this issue is a non-issue -- either they buy from local producers or, err, they overpay. That isn't protectionism, that's practicality!

Now the Americans? Well, that's something different. This squawk from the Chinese is pretty clearly just a shot over the bow of the good ship US, who started the protectionist noises a while back as described in the linked article above.

And don't even get me started on the French! (Uh-oh, too late...)

Farm subsidies immediately spring to mind, where the French government pay French farmers to raise crops and livestock, because they wouldn't be able to survive if they were left to compete with non-French farmers. THAT is the very epitome of protectionism.

Plus laws that protect the brands of certain locally-produced wines and cheeses, so that in spite of the fact you can make the exact same product elsewhere and not be able to tell the difference even if you're an expert, you will still have broken French law and they will seriously come after you and hunt you down like a dog with the full resources of the state until you roll over and admit you are wrong and will stop.

Similarly if you run an international business and make the mistake of employing French people. (This is not intended as a slur against the French people by the way, generally speaking I find I like them just as much as any other people, perhaps more, and that they are innovative and creative by nature. No, this is a slur on their politicians' brand of National Socialism and associated rules of law that in truth are counter-productive to the well-being of their populace.) Anyway, back to business now I have that out of the way. If you operate a business, or even a group of loosely-related businesses, in France in addition to some other set of countries, and you need to let some French staff go for any legitimate reason, you will be pinned to the wall and you will be made to give them jobs elsewhere in your operation, no matter where that might be and in spite of the fact that perhaps those people do no have suitable skills, or even speak the relevant language to enable them to operate effectively in that place. I mean, how protectionist is that? You are expected, or should I say forced because they can and will persue you until you bend over, to give them a job in another country at the expense of some poor working spiv already in that country -- in other words the French government expects the government of some other country to pay the cost of another person being unemployed. The reason of course is clear -- they pay massive unemployment benefits in France, which they in truth cannot afford to pay but they have promised it to the electorate, and so they desperately want to avoid having to pay out on that promise if there is any way possible of doing so.

The French are the globe's uber-nationalists. They can't compete, due to their choice of National Socialism and its massive fiscal burdens, and so they have no choice but protectionism to try to contain their budget deficits.

But I don't see an article this morning about protectionism in the States, or France. Or anywhere else for that matter. Only China.

Why is that? I'll tell you why on this one too: its because the Chinese are one of the few nations actually able to compete effectively in the world market, and the leaders of Western nations are rightly fearful of their rise to dominance in the future. The only way we can hold back and slow the rise of the Chinese is protectionism, as the US government have clearly indicated already.

If you are earning above minimum wage, have a house and a car, and like a drink, hey maybe you even still eat fresh food perhaps, then you will have noticed that generally speaking prices of goods that you ever buy have not gone down in your world over the last year. In fact they have continued to go up. You probably found that you cannot afford to take that big holiday twice a year any more, and as much as you'd love to get two grand for your £500 old banger when you trade it in for a brand new motor, you can't afford to buy that car even with this big incentive.

For people on minimum wage/benefits, who are forced to switch to frozen ready meals, yeah they possibly noticed their costs did indeed go down. Lower quality ought to cost less, but guess what the inflation statistics don't measure quality only cost. They also cannot afford those luxury holidays and new cars, but hey they couldn't before so they don't care. You don't miss what you never had.

For people earning mega-salaries, the cost of stocks and shares, cars, holidays and other big-ticket luxury items have generally speaking been deeply discounted. For them, price deflation is a reality. What is more, they are likely the people owning and operating businesses, and their positions are relatively safe too -- they are not uncertain about their futures.

No, as always, its the middle class workers who are getting squeezed to pay for everything. Who'd be middle class? It's like being saddled with two monkeys on your back.

Sixty of the lowest paid BA employees, let's assume they are paid a grand a month now for the sake of simplicity, being asked to get by on £11,000 rather than £12,000 a year -- now that is a material difference in their ability to get by. That will involve significant hardship.

On what planet does anyone really deserve to be paid £61,000 a month? What could he possibly need to spend that much money on every month? And on top of this salary, you can just bet he gets a non-contributory pension, probably also stock options, and dividends from the stock he already has under his belt. He is just one man and there are plenty of others in the executive earning a pretty penny out of BA too, you can be sure of that. No wonder the company's struggling!

I'm sure last year they were talking of buying up failing competitors. Funny how reality has a habit of catching up on one eventually.

Maybe at this point in the article you're thinking I've gone all socialist now? No, I just don't understand how BA executives, or the executives of any other publicly traded company for that matter, can get away with voting themselves these kind of ridiculous remuneration packages. Why have shareholders not been revolting against this for a long time already? Voted yourselves a ridiculous pay package? Get a shareholder vote of no confidence at the AGM, and it's out on your arse quick-smart.

The people on the ground level in businesses work hard, they are brought in to do a specific job with the promise of a specific (generally modest) salary, and they mostly do it to the best of their ability I'm sure. They are not performance-related positions, and do not get further perks beyond their salary, maybe there is some modest pension contribution if they're lucky.

By contrast, the executive of any business are there to steer the company with an eye on the future and to making changes within the organisation in good time to avert disasters and keep the business in rude health. They should therefore be remunerated on a performance-related basis, atop a basic standard senior-management-level salary to live on month to month. They don't OWN the company, they MANAGE it on behalf of the shareholders. Sure, they should definitely share in the profits that are distributed to the owners, if they have done a sterling job of steering the ship. They certainly should not suck the profit out of the business so that it cannot be distributed to the owners, or better yet kept in reserves for rainy days like these. And certainly not when they are doing so while ignoring the very clear indications about the future of the business and the environment it will operate within. There is no way Willie Wallsh didn't know the airline business was going into tough times the last few years. No way at all. That is, to put it simply, bad management.

I'm afraid... Willie, with no regret... you're fired. (If BA shareholders had any sense, they would tell you that anyway.)

I'm holding my index fingers pressed against my temples right now, and squinting, trying to guess what the result of the big cheifs meeting in Russia today will be.

...

I predict there will be an announcement outlining more bilateral trade agreements between the BRIC nations, and that they will settle their trades in their own currencies, rather than in US dollars as customary in the last few decades and very much to the satisfaction of the Yankees.

Most likely, to facilitate the above, there will be pre-authorised currency swaps put in place (large foreign exchange agreements at fixed exchange rates). This will be to minimise currency exchange rate instability, which will sooth any international vendor/buyer uncertainties at either end of those trade transactions.

This is all hugely dollar-negative of course, since US dollars will be in lesser demand than in the past. With growing supply, and shrinking demand, you would expect the value of any given good or service to naturally decline. However, the dollar index will go up rather than down as you might reasonably expect -- because this is not as bad as expected. Many people are anticipating an announcement that will further strengthen the move to a different global reserve currency/currencies, usurping the dollar as the king of global currencies. But I don't think that reality's time has yet come, because key players are not yet sufficiently diversified and will be taken down with the ship if they launch the missiles at USS Dollar right now.

The reality is that public sector workers are paid with money taken from the pay packets of private sector workers, there is no other place for that public money to come from ultimately (even inflating the currency away ultimately steals wealth from the private sector, transferring it from those people to The Chosen Ones within the public sector).

The public sector has been expanding for years, and there have been increasingly generous pay and conditions attached to those positions too. It had got to the point where half of the working people of the nation were on the public payroll, and they were getting packages comparable with the private sector. How could that work for long, given the fact they are all paid by the other half of the nation?

Are those in the private sector supposed to happily fork over 100% of their hard-earned cash along the line somewhere in Gordon's labyrinthine tax regime? (Sometimes it feels like we are, right readers? Or perhaps you have not yet really considered just how much money that was due to you is taken up in taxes of one sort or another, at some time or another... a lot of it you never even knew was coming to you, it was taken out of your pay packet by your employer on behalf of the government. For example, note that blacked-out bit on your P60; this is where the empploye rhas to write in how much "employer's national insurance" they have paid for you in the year. Why do they not want you to know how much they charge your employer just for employing you? The employer would have been able to give it to you otherwise, that's why! And trust me now, in most cases that indirect contribution you make is a significant amount of money each month -- more than your own contribution to "national insurance" (aka "another tax"). This is just one example of how the amount of tax you pay is hidden from you, there are plenty more if you were to stop and think about it more.)

I am well aware it was in Labour's best interests to keep the (mostly unionised) public sector on side, voting for the side of their bread that was most buttered, and that explains entirely why the public payroll got so far out of hand (again).

The bad, bad news for those people looking for a cushy life -- and a job for life with a juicy pension at that -- is that fiscal reality is catching up with Labour and the public sector workers, as it always does. Now there is an implosion in the private sector jobs market, the public sector will have tipped into more than 50% of the working public. At the same time, the public finances are being further strained by those increasing numbers of ex-private-sector-workers now receiving unemployment benefits. This acidic mix is very clearly not just unsustainable, it is impossible.

Given my thinking on this topic, as outlined above, the linked article held little surprise for me this morning when I saw it on the BBC economics news feed, I was only surprised that this elephant in the room was finally being spoken about openly. However, I bet its the biggest surprise ever for the throngs of people in the public sector who are going to lose their jobs; jobs that in many many cases should never have existed in the first place though, since they were simply unaffordable to begin with.

BTW: Those of you reading this in the States, please substitute "Democrats" for "Labour". If you need to see if this is indeed true, take a look at California's state budget deficits, and the results that you are reading in the media right now. Schwarzenegger isn't taking the governor's red pen to the public sector payrolls budget line for a sick fascist joke, he is doing it because it is the only viable option that is open to him. The Californian budget deficits for years on end were a train wreck waiting to happen, he could not get the Democrats in office to stop voting to spend money they didn't have. They need to get real now, and fast! That kind of problem is not going to be limited to the state of California either, so get ready to empty your own trash down at the municipal facilities sometime soon guys, when the unions are out on strike over job cuts near you too.

You can all just write me off as a right-wing evil pig if you like, its no skin off my nose really. But I would much rather you thought about it first -- that is the main reason I bother to write these blog entries after all, in the hope that I can open the eyes of just one person and make them think for themselves -- and that you realised I am in fact just another mild-mannered realist. To be more specific, I am more of a Libertarian, which I know to most people is a byword for 'fascist', but really you need to learn to think things through for yourself in that case, rather than automatically react the way you have been conditioned to. To me, Libertarian simply means I look after myself rather than expecting someone else to catch me all the time and do everything for me. There is a role for government, but it is much narrower than the current assumed responsibilities: to uphold the rule of law; protect property rights; protect the rights and freedoms of all citizens; provide some key services for the greater good of the public. What is so fascist about that? I would argue that having a socialist regime deciding everything we can and cannot do, extorting money from us under threat of violence and imprisonment to pay for it all, monitoring all aspects of our lives, is far more of a fascist concept. But thinking for yourself is so last generation, I realise.

Previous generations fought long, bitter and bloody wars to prevent this kind of socialist evil coming to our shores. Now generally speaking people will argue vehemently for it. How times have changed.

Gulp. Vipal Monga put up an article on TheDeal.com on 5th June that I just came across. It has some interesting stats within, which suggest there will be extreme and growing deflationary forces in the global economy, until 2014 when they will recede. I hope he's wrong, but the numbers seem compelling.

Government budget forecasts are predicated on economic recovery later this year, or failing that in 2010. The UK economy is heavily leveraged to the financial markets, moreso than any other country I believe (perhaps Switzerland or Singapore are moreso?).

Apparently, Paul Krugman reckons the UK is in best shape economically within Europe right now.

Likely he's right, on current metrics. Although I doubt the likelihood of some of the assumed metrics that are being used regarding future economic performance, as you'll already know if you've been reading my missives for more than a few days.

If he is right, and the UK has been able to show progressive and effective action while the rest of Europe has been stuck with the straightjacket of inaction that is the Euro system... how can any UK politician stand in front of the nation and declare we will be best served by joining the Euro system? That is exactly what Mandelson is doing, and exactly where he has every intention of taking us by hook or by crook.

It can't be both ways: either we are in Shit Street in the UK right now and we will only be saved by diving more deeply into the European Project; or we managed to narrowly avert massive state failure in the UK while the Euro nations are struggling and withering on the vine still, in which case we were best served by not being too far into the European Project and will continue to be best served by steering that course.

You need to decide which it is: are we doing fine and should continue to stand alone; are we stood on the economic trap door awaiting our fate and should desperately try to gain acceptance to the Euro while we will still be welcome. Then you need to vote accordingly one way or another. (Or, like me, choose instead to look after number one, on the assumption that nobody else is going to. But that's just an old fashioned and out-dated way of dealing with things, to do them yourself because you can't trust many other people to deal with them for you, eh?)

To my mind, this is a critical question that few people take seriously enough. In fact, two critical questions: To-Euro-Or-Not-To-Euro; To-Look-Out-For-Yourself-Or-To-Trust-The-Government-Instead.

Friday, 12 June 2009

Looking at a 2-year daily chart -- courtesy of StockCharts.com -- of GLD (a proxy for the gold spot price), I am seeing a clear reverse-head-and-shoulders chart pattern (suggesting the most likely outcome is a dramatic upward breakout in due course). I have highlighted it on the embedded chart image, using red arcs for clarity, and in the process a sleepy smile emerged.

My guess is that a pullback to around $880-$900 or so is in the cards short-term (like, "in June"?), followed by a significant breakout beyond the $1000 barrier-to-date beyond that in the latter half of 2009. Partly this call for a pullback to that area is for the sake of symmetry in the pattern, but also this roughly coincides with the 50-day moving average line (blue), and also a significant area of past support and resistance.

We'll see. Probably I'll be completely wrong and this will turn out to have been a "double top" pattern instead with hindsight. :-)

But as the author of the article points out themselves, the principles at play are applicable far more widely than just this one narrow subject. It is about the statist's creeping exercise of control and power over every aspect of life, liberties removed from your Constitutional rights one baby-step at a time, with overspun distortion of argument to make each of those baby-steps seem entirely innocent and justifiable, indeed to most people unquestionably right. But they add up to a Totalitarian state in the aggregate. Beware of baby-steps. From small acorns, mighty oaks grow. Some acorns should be left to flourish and add to the landscape for sure, but by no means all.

Apparently he agreed to cut $1b from their budget in order to get those lovely loans from Europe, by penalising Latvian pensioners rather than the main (voting) taxpayer public.

Cutting public sector workers payroll by 20% is, however, certainly a good step though -- given they are unproductive (they are cost to society, rather than generators of wealth) and are only employed to serve the private sector wealth creating side of the economy. Brown could definitely learn a thing there, rather than continue to have half the population of the UK on the government payroll -- how can that possibly be sustainable in the long term? Its small wonder our public finances are such a mess these days.

Last year's financial crisis, resulting in this year's economic crisis, was supposedly at root due to massive CDS (Credit Default Swap -- or "insurance against bankruptcy of the borrower") derivative problems in the OTC (Over The Counter -- or "unregulated") financial markets. The OTC derivates market is ENORMOUS; it massively dwarfs all of the economies of the world combined.

(Apologies to anyone who already knows and understands this background, but you will appreciate most people do not.)

Now, onto the subject of this missive then, finally...

The linked article discusses the matter that the enormous problems we have experienced, due to the failures in the CDS derivatives market last year, may well only be a prelude to the Big Kahuna, if the numbers are to be believed. Because on investigation, the author established that CDS are only a small proportion of the whole OTC market, and in fact he discovered the biggest sector of that market is actually IRS (Interest Rate Swaps -- or "insurance against adverse changes in interest rates, which would cause significant losses on the part of the insured party and are therefore prudent to insure against"). IRS are actually something like 3/4 of the market, according to his calculations.

Recently there has been significant volatility in the interest rates on many important bond categories, but most significantly in US government Treasury Bonds (long term loans to the US Treasury) and Treasury Notes (shorter term loans to the US Treasury). The IRS contracts are highly sensitive to volatility in the underlying bond values/yields, and are very susceptible to invokation if interest rates go the wrong way even by seemingly trivial amounts. Its not really a big deal that the issuer of the contract ("insurance") will have to pay out, which would of course be fair given they have chosen to take on that risk at the time of issue. No, the real problem comes when the issuer is forced to pay out on the contract to the insured party, but finds that they cannot afford to do so. This is how the dominos were felled in the CDS failure meltdown, taking out Bear Stearns, Lehman, and all the others, and resulting in your worrying you are going to lose your job, if you didn't already.

The author is concerned, and I share his concern now, that the CDS meltdown was BAD, but if the IRS derivatives start to meltdown as well any time, the results would this time be CATASTROPHIC.

This is a very serious issue, that is being shoved under the carpet. (Or under a tarp, if you prefer perhaps.) I can understand why the elite would prefer you didn't know about this, and therefore why they would cover it up as much as possible. However, it is doing us all a massive disservice to pretend you not knowing will somehow safeguard you against the results, if the nightmare should come to pass. If you didn't know a potential problem existed, how could you possibly hope to have prepared against such an eventuality? You can bet whatever you have that the elite are well prepared for whatever happens, and they will in fact not just survive but prosper at the expense of those that have not prepared.

To stick with the program you are in -- to keep your head down and concentrate just on your job, the latest sports scores and celebrity gossip, show no interest in finding out what it going on outside of that limited sphere -- and let the elite just look after your interests on your behalf, seems to me to be a recipe for disaster. They will look after their own interests, yours will be secondary at best. That's just the way it is.

Its time to look out for number, because few other people will look after you.

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